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Car dealerships – are you due a VAT refund?

Date posted: 10th Jul 2018

HM Revenue & Customs (HMRC) have recently announced that some motor dealers have overpaid VAT in respect of dealer deposit contribution (DDC) when cars are sold on finance.

HMRC are inviting refunds (yes, you read that correctly) from motor dealers affected by this.

HMRC give the following example:

  • A car costs £28,000
  • A finance company requires a £8,000 deposit towards the car
  • The dealer agrees to contribute £2,000 towards the deposit
  • The cost to the customer is therefore £26,000

Some dealers and finance companies have accounted for VAT based on the headline price of £28,000 with the DDC deducted from the payments due after VAT has been accounted for. By deducting the DDC of £2,000 after the VAT has been calculated, the dealers are bearing the burden of the VAT on the DDC and therefore essentially paying VAT on their own monies.

In the above example, VAT would be due on the effective selling price of £26,000 rather than the headline price of the car of £28,000.

Read the full HMRC brief.

If you need further advice, then please contact us.


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